Bulk REO and Non Performing Note Investing

Mortgage and Lending with United Solutions of America

As you read this article history is being made across the United States, as the foreclosure market reaches an all-time high, even higher than the great depression!

It's no secret that Bulk REO investing has become big business and all levels of investors are looking for a way to participate. In this article we will discuss the difference between an REO (real estate owned) and NPN (non performing note), plus how you can profit from both as an investor.


Let's start with the fabled REO...


An REO (real estate owned) is simply a property that has gone through the foreclosure procedure and has been taken back by the bank due to an unsuccessful sale at the court house. These REO properties are currently owned by banks, private equity firms or hedge funds that have purchased them from the banks in large tapes or packages.


How do you make money from Bulk REO investing?


  • First we have the Mandate or Broker:


Brokering Bulk REO is no different than any other business where you find the product at a certain price, then go out and sell it to an investor and earn a commission for your time and effort. The big difference is that with Bulk REO that commission can be thousands of dollars per transaction. For example, if you sold a $1MM dollar package or tape, your commission can be 1.00% to 3.00%. That means that you can potentially earn $30,000 for just one transaction.

In addition to points, you can also use the "spread" strategy to increase your profits when brokering these deals. For example, let's say a Bulk REO wholesaler is selling a package for $500,000, and you offer it to another client for $550,000. You have just worked the spread to make $50,000.


  • Second, we have the Cash Buy Approach


If you have the right connections with banks, your second option is to become a Tier 1 buyer of Bulk REO's. These are usually private equity hedge funds, real estate investment trusts, or high net worth investors that play in the game who have the cash to buy packages of 100 plus homes. This is where you get the greatest discounts-when buying directly. Then you can re-sell these homes wholesale to secondary buyers for maximum profit.


  • Third you can take the Rent or Sell Approach


With this approach, the average investor is able to earn a sweet return on investment. After rehabbing the property, you can sell it with the buyer obtaining a traditional mortgage. Or if the buyer does not qualify for a loan, you can hold back the lien yourself and keep all the interest.


Non Performing Notes, what are they?


A Non Performing Note is a mortgage that has not been paid and it is in some stage of the foreclosure procedure, such as late 90 days, summons served, etc.


How do you Profit from Non Performing Notes


  • The Quick Flip Strategy


Obviously the most sought approach is to buy the notes at deep discounts and then sell them fast for a quick profit. This will avoid having to deal with delinquent homeowners that have not paid their mortgage. If you take down a million dollars worth of notes at 20% of the UPB (unpaid principal balance), and quickly turn around and sell it at 30% of the UPB; you just pocketed a handsome $100,000 profit.


  • The "Cash for Keys" Strategy


Another strategy is the now famous "cash for keys" method. Using this approach you can negotiate with the homeowner a reasonable fee for moving out without having to go through the foreclosure machine. This is good for you since you avoid the time and cost involved and it is also positive for the homeowner since they avoid a foreclosure stamped on their credit report. This will allow you to list their property for sale within a very short amount of time.


  • Reduce the Loan Principle Balance Strategy


This strategy will make sense for those homeowners that are able to qualify for a new mortgage or have a friend or family member that will co sign for them. Let's say you paid $40,000 for a note that had a UPB of $200,000; you can propose the following to the homeowner: "I will cut your principal balance in half and you can stay in your home, but you have 14 days to refinance your mortgage and cash me out". Most homeowners that have the ability to get this done will not think twice to take advantage of this opportunity. Once closed, you just earned a hefty $60,000 profit, plus made possible to keep the dream of ownership alive for another fellow American.


To really make considerable profits Bulk REO and NPN investing is the way to go in this current real estate market because you're buying distressed assets at rock bottom prices. It is best to navigate both sectors of the bulk market, this way you keep your options open and double your opportunity windows. Choosing the right niche depends on several things; your short and long term investment goals, how long you can commit your money into an asset before you need to recover those funds (typically, it may take longer to get your money back if it is invested in an NPN); if you prefer to own the paper (mortgage note) as opposed to the tangible assets (deed); or what your exit strategy entails.

It does not matter which strategy tickles your investment bone, all you need to make sure is that you are dealing with a real source for Bulk REO and NPN and you are paying a price that make sense. Now, go make a fortune!

Posted by


Ray Piel

1.800.928.5899 ext. 118
1.800.928.7599 fax


Comments (4)

Brian Portwood
FW Realty Solutions - Fort Worth, TX

Very good information, thanks for the post.

May 31, 2010 11:08 AM

My pleasure Brian, glad you enjoyed it.

Jun 01, 2010 04:12 AM

How does a investor learn or partner with one of these non-performing notes?


Sep 02, 2012 06:25 AM
Leslie Kalk
Real Estate Investor specializing in distressed assets - Naples, FL

 Great post. Very well said.

Oct 11, 2014 06:02 AM